Major pension funds speak out on credit crisis

A group representing hundreds of the world’s largest pension funds says institutional investors must accept their share of responsibility for the “the largest financial crisis in a generation.”

Signatories to the United Nations Principles for Responsible Investment, including the Canada Pension Plan Investment Board and Quebec’s Caisse de dépôt, issued a joint statement today, urging its 500 members to work together to improve risk management practices.

“As clients and part owners of the financial institutions at the core of this crisis, institutional investors should accept some shared responsibility for the behaviours that led to the crisis,” said Donald MacDonald, chair of the PRI Initiative. “In response, and to protect our investments over the long-term, institutional investors need to greatly improve due diligence within the investment chain, and to practice and incentivise much smarter risk management.”

At the same time, MacDonald says he believes the current crisis represents an opportunity, potentially shifting the mainstream investment sector towards more responsible investment practices.

“Institutional investors can make a positive contribution to rebuilding trust by taking action in support of our eight-point plan set out today,” he added, “PRI signatories can lead from the front to make that happen.”

The plan calls on institutional investors to invest more in responsible investment activities, create a culture of “active ownership” by monitoring investments more closely and engage in dialogue with companies where risks are not being managed appropriately.

The PRI also says that institutional investors should engage with governments and market regulators to ensure that responsible investment is seen as part of the solution. Investors should also disclose their responsible investment activities, emphasizing measures being taken to respond to the credit crisis.

Long-term value and success of business are inextricably linked to the integration of environmental, social and governance issues into corporate management operations, the PRI’s plan notes, adding that corporate responsibility will help restore the trust that is required for markets to function.

“Integrating responsible investing with our asset management is part of our fiduciary responsibility,” says Anne Stausboll, CEO of CalPERS, one of the world’s largest pension funds. “More than ever, we're committed to collaborative efforts to develop better regulatory and market risk management structures and to better assess and fully report risks and opportunities related to environmental, social and governance issues."